Section 12.3 — Industry Performance & the Business Cycle

Highly sensitive to the business cycle and inflation trends.
Tend to do well during expansions and poorly during contractions (recessions).
Usually produce durable goods or capital goods — items purchased when the economy is strong.
Examples:
- Steel and other industrial metals
- Autos
- Heavy equipment
- Capital goods (e.g., washers, dryers, refrigerators)
Reason: During recessions, manufacturers delay investments and purchases of big-ticket items.

Least affected by normal business cycles.
Produce non-durable consumer goods — items people buy regardless of economic conditions.
Perform better in recessions than cyclical industries (they decline less in bear markets).
However, they may grow more slowly during economic expansions.
Generally considered lower risk, lower return investments.
Examples:
- Food
- Utilities
- Clothing
- Drugs (pharmaceuticals)
- Tobacco
- Liquor
Tip: If the product is used once and consumed, it’s probably non-cyclical.

Tend to perform better when the economy turns down.
Investors seek these industries for safety during recessions or bear markets.
Primary example: Gold (and other precious metals).
- People buy gold when the economy weakens and sell it when the economy strengthens.

Unaffected by the business cycle — they grow regardless of the economy’s condition.
Driven by innovation, technology, or changing consumer habits.
Applies to entire industries or specific companies that continuously expand.
Example:
- Mobile technology and smartphone companies in the late 1990s and early 2000s grew rapidly even during the Great Recession.
- Meanwhile, public telephone equipment manufacturers declined sharply.

Cycle

Cyclical, Non-Cyclical (Defensive), Countercyclical, and Growth.
They are highly sensitive to business cycles and inflation; they do well in expansions and poorly in contractions.
Steel, automobiles, heavy equipment, capital goods.
Least affected by economic cycles; produce everyday goods consumed regardless of conditions.
Food, utilities, drugs, tobacco, clothing, liquor.

Countercyclical industries (e.g., gold or precious metals).
An industry or company that grows steadily regardless of the economy.
Mobile technology and smartphone companies in the late 1990s–2000s.
Because demand for big-ticket and durable goods falls as consumers and manufacturers cut spending.
They carry less risk and are stable, so they don’t benefit as much during economic booms.